The New Jersey Appellate Division has once again reinforced that arbitration provisions are very much enforceable.
This ruling gives a strong boost of support to the Bais Din system. At the same time, the ruling reinforces how imperative it is for parties to commercial contracts, divorce agreements, and rental leases to closely review precise terms of arbitration clauses with experienced Toanim and Lawyers to ensure; a) that there are no confusions as to what is being agreed to; and b) that the agreement will be enforceable in court if necessary.
In September 2020, Anita Diorio purchased Pella door products from Gunton Corporation to install in her house. The contract price for the door products, inclusive of installation, was $36,989. Diorio paid a $10,000 down payment. The $26,489 balance was to be repaid through 144 monthly payments and financed by another company, Service Finance Company ("SFC").
Diorio signed two form contracts for the transaction: (1) a services contract with Gunton for the sale and installation and (2) a financing agreement. Before signing the contracts, Diorio was informed and shown photos of the door products that would be installed. Diorio signed each page of the services contract identifying the door products to be installed. Thereafter, Gunton delivered and installed door products to Diorio.
Although she paid $500 upon their installation as called for under the contract, Diorio was dissatisfied with them and also believed they were incomplete. She accordingly stopped her monthly payments that were due on the remaining balance.
Consequently, Gunton filed a collections action against Diorio in New Jersey Superior Court in Gloucester County to recover the balance due. In response, Diorio filed numerous counterclaims against Gunton.
Gunton moved to dismiss Diorio's counterclaims, invoking an arbitration clause in its form services contract.
In pertinent part, the arbitration clause reads:
YOU and Pella and its subsidiaries and the Pella Branded Distributor AGREE TO ARBITRATE DISPUTES ARISING OUT OF OR RELATING TO YOUR PELLA PRODUCTS (INCLUDES PELLA GOODS AND PELLA SERVICES) AND WAIVE THE RIGHT TO HAVE A COURT OR JURY DECIDE DISPUTES. . . . You may opt out of this Arbitration Agreement by providing notice to Pella no later than ninety calendar days from the date You purchased or otherwise took ownership of Your Pella Goods. . . .
For complete information, including the full terms and conditions of this Arbitration Agreement, which are incorporated herein by reference, please visit www.pella.com/arbitration or e-mail to pellawebsupport@pella.com, with the subject line: "Arbitration Details" or call (877) 473-5527.
Gunton asserted that Diorio failed to timely exercise her right under the contract to opt out of the arbitration within 90 days of payment or receipt of the goods. Diorio, meanwhile, contended that Gunton waived its right to arbitrate by bringing the collections action against her in the Law Division. She further argued that the clause is unclear and unenforceable under the standards of Atalese v. U.S. Legal Services Group, L.P. and other case law.
The trial court granted Gunton's motion to dismiss and compelled arbitration. As part of its ruling, the court dismissed the complaint and counterclaims without prejudice, enabling them all to be litigated in arbitration.
In the court's written statement of reasons, it found the arbitration clause was sufficiently clear and unambiguous to be enforceable. The court also rejected Diorio's argument that Gunton waived the right to arbitrate, noting that there was no prejudice to either party and that the lawsuit was only in its preliminary stage.
Diorio appealed the ruling.
In a written ruling just released, Appellate Division Judges Sabatino and Chase were unpersuaded and they enforced the arbitration provision.
We first address Diorio's contention that Gunton waived its right to seek arbitration of their dispute because it chose to file suit against her in the Law Division and included a jury demand with its complaint.
"Any assessment of whether a party to an arbitration agreement has waived that remedy must focus on the totality of the circumstances." Cole v. Jersey City Med. Ctr.
Courts must "concentrate on the party's litigation conduct to determine if it is consistent with its reserved right to arbitrate the dispute." Ibid.
The Supreme Court instructed in Cole that the following factors, among others, are relevant to an assessment of waiver: (1) the delay in making the arbitration request; (2) the filing of any motions, particularly dispositive motions, and their outcomes; (3) whether the delay in seeking arbitration was part of the party's litigation strategy; (4) the extent of discovery conducted; (5) whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration; (6) the proximity of the date on which the party sought arbitration to the date of trial; and (7) the resulting prejudice suffered by the other party, if any. No one factor is dispositive.
In Cole, the Supreme Court's "evaluation of the totality of the circumstances of this case led to the inexorable conclusion that [the defendant] waived its right to arbitrate . . . ." There, the defendant "engaged in all of the usual litigation procedures for twenty-one months" and only invoked its right to arbitrate just three days before the scheduled trial. "Such conduct undermines the fundamental principles underlying arbitration and is strongly discouraged in our state."
The present case does not involve such extreme circumstances and a protracted time frame. As the trial court correctly recognized, the lawsuit was only in its incipient pleadings stage when Gunton moved to compel arbitration. There was only a modest delay (Cole factor #1) before Gunton filed its motion. The motion was the first motion filed in the case (Cole factor #2). There is no indication in the record that the brief delay was part of a litigation strategy (Cole factor #3). No discovery had yet been conducted (Cole factor #4). However, Gunton did not raise the arbitration clause in its initial pleading (and it would have been illogical to do so as the plaintiff), instead waiting until after Diorio filed her counterclaims (Cole factor #5). No trial date had been set (Cole factor #6). Moreover, Diorio has not identified how she has been prejudiced, other than the expenditure of her time and legal resources in the Law Division, neither of which are dispositive.
The situation here is markedly different than the circumstances in Cole, where the defendant invoked its right to arbitrate just three days before the scheduled trial date. The balance of the factors in this case clearly weighs against a finding of waiver.
The subject matters of Gunton's collections complaint and Diorio's counterclaims overlap significantly. The motion judge rightly treated them as part and parcel of the same dispute. It would make little sense to have an arbitrator decide if Diorio had valid grounds to decline to pay for the door products installation and then relitigate that same question in the Law Division. The complaint and counterclaims should be decided at the same time by the same tribunal. Indeed, Gunton has not cross-appealed the court's decision to combine the proceedings to resolve the complaint and counterclaims in one forum.
We do not know from the record exactly why Gunton did not immediately proceed to arbitration, but its apparent initial misstep in filing a Superior Court action does not require the dispute to be litigated to conclusion in court, assuming the arbitration clause is enforceable. We therefore turn to that question of enforceability.
Our Supreme Court in Atalese has made clear that to establish mutual assent in the context of an arbitration provision in a consumer contract, the arbitration clause must use language that is "clear and unambiguous." Although "no particular form of words is necessary to accomplish a clear and unambiguous waiver of rights," the clause must ensure that consumers "have a basic understanding that they are giving up their right to seek relief in a judicial forum," and "that there is a distinction between resolving a dispute in arbitration and in a judicial forum." Arbitration clauses "will pass muster when phrased in plain language that is understandable to the reasonable consumer." However, the Supreme Court clarified that it was "imposing no greater burden on an arbitration agreement than on any other agreement waiving constitutional or statutory rights."
Guided by these standards, we agree with the trial court that the arbitration clause in this case was enforceable. As we noted above, the clause specified that the parties "AGREE[D] TO ARBITRATE DISPUTES ARISING OUT OF OR RELATING TO YOUR PELLA PRODUCTS (INCLUDES PELLA GOODS AND PELLA SERVICES) AND WAIVE[D] THE RIGHT TO HAVE A COURT OR JURY DECIDE DISPUTES." The contract linked to a website that included definitions of words and phrases in the clause.
This quoted language, although brief, is sufficiently "clear and unambiguous" to pass muster under the Atalese standard. The clause is "phrased in plain language that is understandable to the reasonable consumer," and therefore put Diorio on notice that she was "giving up [her] right to seek relief in a judicial forum."
As in Flanzman, the present arbitration clause "clearly and unmistakably informed the parties that for 'any and all claims or controversies arising out of or relating to'" the contracted services, arbitration would take the place of a civil trial.
Accordingly, the trial court did not err in enforcing the arbitration agreement.
We ascribe no significance to the fact that Diorio's related financing contract with SFC did not have an arbitration clause. We concur with Gunton that the services contract and financing contract are "separate and independent" contracts "for two different purposes."
Here, the financing and services contracts are in no way conflicting or inconsistent. Diorio does not point to any language in the financing contract that negates the language in the services contract.
Lastly, we reject Diorio's argument that, because she "did not take ownership" of the goods, the ninety-day opt-out window has not yet begun run, and she could therefore still opt out of the arbitration agreement. Under the terms of the contract, Diorio had the opportunity to "opt out of this Arbitration Agreement by providing notice to Pella no later than ninety calendar days from the date [she] purchased or otherwise took ownership of [her] Pella Goods."
Although Diorio disputes whether she took full ownership of all of the Pella goods she ordered, she does not and cannot argue that she did not purchase them. Diorio paid a $10,000 deposit for her Pella goods. She acknowledges that she paid $500 due "at the completion of the installation." The ninety-day window began to run, at the very latest, at the completion of the installation and the $500 payment. The record fails to document that Diorio served an opt-out notice within that time frame. Having failed to opt out within the prescribed period, Diorio is now bound by the arbitration provision.
The winning attorneys are John W. Trimble, Jr. and Katrina M. Register Esq. of Trimble & Register.
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